Budgeting Dilemma: How Do You Decide What You Can Afford?

This is a guest post from No Debt MBA, who is trying to pay for an MBA from a top-five business school without student loans. This is a post that asks questions but offers no answers.

My significant other and I had an interesting discussion the other night. We were trying to make plans for a week of vacation this summer and were deciding between two different options:

A cross-country trip with plane tickets where we’d spend some nights staying with friends and spend days touristing and eating out.

Driving to a nearby state or national park and camp or backpacking for a week.

I’m headed to business school in the fall, and my first tuition bill is due in a few weeks. Can you guess which option I advocated?

What can I afford?
The discussion brought up an interesting question of what kind of luxuries I can afford right now. Neither vacation plan was particularly extravagant by most measures, but the first would cost over $1000 per person and the second would be under $500 per person (even if we bought new gear).

I have enough money in my savings account right now to pay either bill; however, I see that money as being earmarked for business school. I don’t have enough to pay for both years of my MBA, even when I make some reasonable projections of future income (such as next summer’s internship). Do I really want to add a $1000 vacation on top of this?

My significant other pointed out that I probably have more than enough to cover the rest of my goal and have fun if I use my Roth IRA, which I had considered as a vehicle for saving for my MBA, but also as retirement savings. I countered that raiding my retirement savings or taking out student loans for a vacation was financially irresponsible and against my values. Plus we could have a fun, but less whizz-bang vacation around here for a lot less.

Note: Before you think my significant other is crazy or a spendthrift, let me note that this trip had been under discussion for a long time. We had planned to stay with people we know to avoid most of the hotel costs, and the trip would have been paid for in cash. I’ve basically gotten financial cold feet.

Seeking balance
We decided to stay local for our vacation, but I don’t think either of us felt particularly good about the discussion. The question of what I can afford will continue to be a problem since I’ll still have cash sitting in the bank to pay for next year’s MBA expenses and my basic living expenses. But my significant other will be continuing to work and has a right to be interested in maintaining a lifestyle that reflects that.

So the question is: What can I afford? How can I tell? Can I afford to eat out tonight? Go to a concert? Buy new clothes? Up our $25/week grocery budget?

It’s very important to me to meet my goal of graduating debt-free. So far, my significant other has been supportive. But there’s definitely a balance to be struck here. That balance will keep my goal sustainable and help me avoid burnout. It will also keep my significant other from going crazy and resenting my extreme frugality and goal of staying debt free.

I’ve incorporated basic living expenses into my budget estimate. I know I’ll need to buy food, pay rent and utilities, and have a way to get around. But the question is how much else can I afford. Additional expenses just make my goal harder to reach. At the same time, I don’t want to make my significant other miserable for the next two years.

J.D. has his balanced money formula, but how does something like that work (or any budget at all, for that matter) when you have no income coming in and a limited amount of savings?

It sounds as if you’re keeping completely separate finances – changing that (even in some minor ways) might offer a possible solution. When I started working, my significant other was still in college. Not only was he not making any money, school was costing him money in tuition fees, travel expense and school supplies. I wasn’t earning enough money to pay for all our shared expenses, so we decided to split the rent down the middle, but I would pay for utilities and groceries. After he started working, I decided to go back to school and we switched the arrangement: I paid for school, half the rent and my personal expenses, he paid utilities, groceries, his personal expenses and half the rent. Also, if he wanted to go out for dinner or do something special, he’d pay. Now we’re both working, we split everything down the middle again. (Although he still tends to pay for dinners and such, since he earns a bit more than I do.) This works for us, because in the short run it might’ve cost me money to support him while he was in school, but in the long run I benefit since he’s happy and his earning potential has gone up with his degree. The same goes when it was the other way round.

Yes, it can be very difficult when you’re partner has a significant higher income. This year I was in a similar position, we would be going to Belgium for a few days but in the end I was not prepared to take a huge bite out of my savings for that, considering I already had to be a bit tight with money because we are saving for our wedding in September…

Also: after detracting all the non-avoidable costs (in my case: rent, healthcare, tuition, taxes, travel expense, sports club membership, newspaper subscription) from the money I had saved for the year, I divided the leftover by twelve and that was my monthly budget for personal expenses. I could afford whatever fit in the budget. And if the money was gone, it was gone and I’d have to wait for next month. But because of the arrangement with my significant other, I never had to worry about being able to eat or turn on a light. This worked for me without driving me crazy with panickey money-thoughts.

Instead of hitch-hiking, use a rideshare service. CouchSurfing.org has several groups devoted to this, and you can view the profile of the person you’d be riding with, read their references, email/phone them beforehand. Much safer — and you’ll meet a new friend!

Do you ever watch the Suze Orman show? You may be entertained by her “Can I afford it?” segment each week (you can download the show for free on itunes).

Her rules of thumb tend to be that you can afford something if:
* You have an 8 month emergency fund
* You have enough liquid money on top of that to pay for what you want
* You only have mortgage debt, if any
* Your retirement savings are on pace (and not considered liquid)

I think it is a fairly good formula – however given that your income will be very limited, you may want to be more conservative.

As far as vacations, if the extra $500 is worrying you – you won’t enjoy the pricier vacation any more than your local plan – as you may be stressed about the cost the whole time.

At least when camping you really can know what everything will cost, whereas if traveling and even staying with friends, you will be tempted to pay for the local attractions (‘since we’re here we should pay the $40 admission’) and dine out (‘our friends are letting us crash with them, let’s take them somewhere nice’). Where as at the park I would guess you are going to shop once and pack in most everything you will be using for the trip.

Good reply Bon. I will have to look up that segment. I always have this question. With all her points checked I still wonder – should we be saving more (and not spending – hence what can we afford)? Should we be saving more for summer camps when my children are a few years old, more for this, that, and the other that I don’t foresee in the future. Some purchases I do in a split second but some we agonize over for ever. I think maybe a list of priorities is important too. Really sit down and think about all possible expenses for the next few years might help.

I agree 100% with the prioritizing – I love Suze’s advice but it is a bit generic. You should definitely download the shows, her other segment great is called “How am I doing?” where she tells people if they are on track for a certain goal (i.e. retirement, paying for kid’s college, etc.). I’m a big personal finance nerd so I watch every week

My husband & I have relatively separate finances, so we often have discussions like this. Our method is that if there is no compelling reason from a family perspective (such as truly not having the money or having a more important need), the partner that wants the pricier option covers the additional cost for both. For example, if he doesn’t feel like cooking, he’ll buy the take out. If I *really* want us to go to visit family, I save up and pay for it. The key to making this work is that neither partner should be overspending. When we needed to suddenly replace a car, our budget did not allow for a brand new car, no matter how willing either of us was to take on the additional costs.

If your significant other had a similar financial goal (saving for a down payment, retiring a debt, whatever) you might better see eye-to-eye on the frugality thing. That’s not an easy sell if they’re not in that mindset, but it’s worth a conversation at least.

Keep in mind if your relationship is built to last, 2 years is just a blip in the scheme of things. If you put the work in to keep the relationship healthy some financial tension won’t kill you.

Once you’re back to work, hopefully pulling down a good salary and debt-free you’ll have plenty of breathing room and a ton of options for directing your income. You can take whatever vacation you want, without the worry that you’re endangering a goal that’s so important to you.

If your SO is not a spendthrift, if you are planning to marry, and your SO is willing to help pay off any loans, just take a loan and enjoy the trip.

Once you are in school, particulary for the first year, you will have NO time to spend with your SO. Consider this the modest price you pay to maintain the relationship. (I remember drivign 3 hours each way to see my husband at b-school, when he could only spare 30 minutes to have dinner with me.)

Tim,
Great post! Two years really isn’t that long and even if you went without a vacation for two years I’m sure you and your relationship would still survive. If you can graduate from a top MBA program debt free and get a decent paying job from it, your vacation options in the future will be outstanding!
Work together with your significant other to reach this goal together. It can be beneficial to your relationship. I know it works for some, but I’m against the separate accounts for married couples. I think a marriage is two becoming one and a part of it that can really help the relationship grow deeper is to make spending decisions and goal setting together.

I have the same question. It looks like you have set your priorities and a spending plan to go with it. So it looks like you are really asking whether graduating with no debt should be a priority or vacationing now should be a priority. This is how we decide if we can afford something -
1) If there is no money to pay for it (and if it is not an urgent medical payment), we cannot afford it.
2) We have all the savings in a “goal oriented” savings system. Every single dollar has a goal and a name. It is sitting in that goal sub account. So if I don’t have enough money in the “vacation” account, it has to come from “tuition” account. Decide on what is important to you. If vacation is more important – there, you can afford the vacation but you cannot afford the tuition.
3) If the vacation fund doesn’t have enough money and you want to do it both – earn more. If you are still in the planning stages, you will have a month to go for this trip? Try to bring as much more as you can in the mean time. You are a blogger, take a up a freelance writing job, be a virtual assistant for a month, help set up social media for someone… There are plenty of ways you can bridge the gap between your two vacation plans.

It is a conscious decision you make and you have to take responsibility for it.

I’ve found it works best for me to “look ahead” in my finances and decide what I can afford for the upcoming year. This lets me know if I’ll have “extra” to spend on something special that comes up during the year.

It helps me to already have in my mind whether I’m “underspending” or “slightly overspending” for scheduled things during the entire year. Knowing all this helps me to not feel guilty if I do decide to spend on the something special. For example, I’ll think: My car will be paid off near the end of this year, so I can afford one weekend trip to Chicago right now.

On the other hand, if I lost my job or was planning on stopping working to go back to school, I’d cut my spending by a TON immediately. Because I consider that my lifestyle, which includes which vacations are “reasonable” financially for me, needs to be totally different if I didn’t have an income.

That’s what we do. I actually have four different planning horizons — retirement, the next few years, this year, and this month.

Retirement is set-it and forget-it. Right now, I just fund my 401k. Between my match and my contribution, it’s 11%. I want to increase that a bit in a few years.

“The next few years” covers major expenses that are likely to arise in the next 5 or so years. This would be a house down payment, new furniture, and travel. By planning this way, we can choose to take a particularly nice vacation one year, if we take a smaller one the next.

“This year” covers whatever is going to come up this year. For instance, my wife turns 30 and wants a nice party. Traveling to see family could be one.

“This month” covers whatever comes up this month. Be it car registration bills or whatever.

So, I decide whether or not we can afford a particular splurge based on how we are doing with all of our major, mid-major, and minor goals.

Just a thought, but have you explored the graduate Assistantship or Fellowship options that might exist within your MBA program? Most of these programs will cost you a fraction of the normal tuition price, and they will also pay you a monthly stipend.

I work at a large public college, and I have found that many people choose to pursue a program that offers assistantships as opposed to pursuing another graduate degree that does not. For example, a grad. degree in econ or marketing versus an MBA, so they could take advantage of virtually free tuition.

I might not have said it like that, but it’s a valid point. Student loans don’t have to be large. There is a lot of room between zero debt and tens of thousands of dollars. If you will have a happier family and less stress at home by borrowing $2500 over the next two years to bridge the gap and cover modest choices like this one, that would be worth it to me.

I made the conscious choice to borrow $33k for one year of grad school (tuition was $22k). My program was only 1 year for full-time students.

Did I want to borrow that kind of money? Not really. Not on top of $50k for my BS. I looked at being a part-time student, but there are economies of scale for full-time students. Also consider that while I was in school, I would likely just have a “pay the bills” job.

Taking out $30k for grad school was at best wise, and at worst, not foolish. The repayment on a $10k loan is $100/mo for 10 years. That’s peanuts if it has a material impact on your quality of life for the next couple of years.

I agree. My wife and I have some pretty low-interest, but sizeable student loans. Because they are so low, paying them off soon becomes more of a philosophical and less of a PF choice. Especially when one starts to make time value of money calculations, I can’t see the point of trying to make $800/mo payments for ten years when I can make $500/mo payments for 20 years.

6.8% isn’t really low, but strangely enough, that’s the “face value” of most of my graduate loans. I have “promotions” on the account that after I pay the loan for 24 months, they reduce the rate by 1%, and then after 12 more months, it reduces another 1%. Plus, I get a 0.25% reduction for auto-draft. So, after the 36-month mark, I’ll be at 4.55%. That’s a good rate, and fixed.

I have only one student loan with a rate above 5%, and that’s a GRAD PLUS loan at 7%.

My undergraduate loans are in a similar boat — rates range form 2.875% to 4.25%. I’m simply not in a hurry to pay off loans with interest rates that are close to the expected rate of inflation.

loading....

71

Jaime Bsays:

04 August 2011 at 1:54 pm

I was able to consolidate my loans in ’09 with Direct Loans (feds) under a 2.5% int rate. My monthly payment is $122. Right now I’m only paying $150 while I concentrate on saving money to put into house repairs and other things. I would love to pay off my loan in a lump sum next year but for such a low interest rate it’s more profitable to concentrate on other things right now.

lol, on the other hand my tax deduction on the interest is so low now. I would absolutely rather have a super low interest rate than the deduction, I was just hadn’t thought about that and was surprised when doing my ’10 taxes.

loading....

74

lawyerettesays:

04 August 2011 at 2:08 pm

People who aren’t familiar with the current state of student loans tend to be really in the dark. In the late 90s and early 00s (aughts?) interest rates were about 3-4% if not lower. Anyone who started grad school after 2006 is paying rates closer to 7% (6.8 was the Stafford rate while I was in school) so most young JDs/MBAs/MDs have 100K+ in debt at rates averaging 6-8% (and more in some cases – I think PLUS loans were 8.5% while I was in school).

I make enough money to cover my loans even on a 10 year plan, but it hurts in terms of cutting into the “lifestyle” I would otherwise have as a law firm lawyer. But I realize that I’m lucky to even have a firm job. It really hurts that I can’t deduct the interest payments either – people don’t seem to realize that the tax deducation is phased out after 75K.

loading....

72

Lindsaysays:

04 August 2011 at 2:01 pm

Dan,

Are you up for sharing the institution you work with to get your interest rates on your student loans reduced in that way? My husband and I are in the same boat re: large amount of loans, and while I wouldn’t trade the experience nor what has resulted, I wouldn’t mind decreasing our rates a little more.

It sounds like you’re already living a pretty frugal life. Given that context, I think you should definitely take whichever of these trips your significant other prefers. $1,000 isn’t a huge deal for a future MBA. Although I bet you’ll find ways to make up the money, I think it would be much better to fail to reach your goal and graduate with $1,000 in debt than to renege on a trip you and your partner have been discussing for a long time.

And although I can’t really claim to know your relationship based on one blog post, I will say that based only on the information in the post, I question whether you have your priorities straight. I could be wrong but if this strikes a chord with you, maybe it’s time to increase focus on the goal of being a really awesome, incredible, loving partner and less on the no-debt MBA.

based on the depreciation value of the BS and the current reassessment of the state school MBA, give it 5 more years and even the top schools will have lost their “magic carpet” gas. We’ve come back ’round full circle and it is no longer “what you know” in this country but “who you know.” Part and parcel of this destructive path our country is on.

Besides, at no point does the article say he’s going ivy…in fact, if he is at all convinced that a debt free MBA not subsidized by scholarship or family money is possible, I would hazard that he is not.

I don’t see this post being about answering the question, “How do you decide what you can afford?”. It feels to me that this is really about communication, expectations, goals, and respect. The money is just the vehicle for all those bigger topics.

According to your post, you decided as a couple to take a trip to visit friends. And now, you’re getting cold feet.

If you wanted to stay with your original plans, there are many things you could do besides robbing your retirement or school funds: sell something, get a short term job, plan a bargain trip (cook cool meals for your friends, plan cheap activities etc.). I’m sure others here would have hundreds of suggestions.

If you want to know what you can afford with the money you have to live on, that’s just simple financial calculations.

The question you didn’t ask is the one you have to answer:

Is my SO in perfect agreement with my goal? And either way, how do my choices affect this person in my life?

In the year 2011 it is extremely difficult to know exactly what level in a relationship a “significant other” falls. So perhaps she’s wondering a bit if her putting her life (or at least nice vacations) on hold for a couple of years is really a good investment in you.

You are at very different points financially right now. Are you still going to even be together once your earning potential comes back? If you look at it that way, you might see the concern from her side of the fence.

Also, am I the only one who is horrified that you are keeping vacation and other temporary savings in an IRA? Did I misunderstand that? Isn’t there a severe penalty for removing funds before age 59? How about a plain vanilla savings account for short term goals?

I believe he said that the money was in a *ROTH* IRA. Roth IRAs can withdraw the principal at any time for any reason without penalty (because you put the money in after taxes). You just can’t withdraw the gains tax free.

And, I haven’t seen the investment mix in the Roth – it could be TIPS, bonds and CDs – in which case it’s a great savings vehicle because if you end up not using it, you can pull it all out tax free at retirement.

Thanks to what amounts to a no income limit Roth, we’ve put our kids’ tuition funds into one. We’ve got 401k’s and a much smaller traditional IRA that we haven’t added to in years. We can take out the principle from a Roth anytime and can take all of it without penalty once we reach 55. Since it’s technically a retirement account, it won’t count as heavily toward assets if our kids get financial aid. If we don’t have to take it for tuition, it’s gravy for retirement.

“According to your post, you decided as a couple to take a trip to visit friends. And now, you’re getting cold feet.”- you and I totally have the same point of view here.

I felt that was really mean of the writer of this post! He blew off his friends in another state, who he probably gets to see once every few years, because of a worry about a small amount of debt.

I am a student myself, and I scrimp and save like crazy so I can visit my friends around the world. Yes, when you’ve got £2 a day budgeted for food, a £60 train ticket can seem like a lot, but it’s worth it to spend time with the people I love!
I raided my ISA (tax free savings) to go see my boyfriend when I was in a long distance relationship. No regrets, it was a beyond wonderful trip and I got to see the man I loved. Yes, it set me back a little in the long term savings goal, but it was worth it.

Perhaps it might have helped if you had this discussion when you were making the decision to get your MBA, as you were realizing you would have to cut back on expenses. I would not ever suggest raiding a retirement account, while the money may be applied to tuition, in reality it is for the vacation.

What can you afford? You can afford ANYTHING as long as you are LIQUID, which means all your debt is paid off (except your mortgage) and your emergency fund is adequate. What is adequate? Enough to cover expenses for the amount of time it would take your significant other to find a job if they lost their current one. Once you’re at that point, then you can spend whatever is left over, which is your LIQUID number.

I totally understand your desire to be debt free, however is it fair to your SO? Essentially for 2 yrs, while you pursue your dream, your SO is putting their lifestyle on hold to accommodate you. Sure the person could go on vacation alone, but how much fun is that? There will be less joint fun because of your goals. I think you need to find a way to make sure that both of you have some stake in this degree and ultimately the relationship, or it might not last the 2 yrs.

Have to disagree. They are both still independent actors, they are not a single financial unit – that much is clear.

What would NOT be fair – for either party – would be for someone to spend more than they can really afford, damage their long-term goals, and carry resentment about that forward.

The SO is in a position to do whatever s/he wants. If a vacation (or other lifestyle expenses) is THAT important, s/he should cover the cost. If it’s something s/he can’t afford alone, that’s IMO a red flag about the expectations involved.

My partner and I have these types of discussions quite a bit. By Orman’s advice, I can afford almost anything, but it comes back to JD’s idea of I can afford _anything_ not _everything_. So we use targeted savings, but then I get slightly concerned when what I’m doing is raiding one savings account for another or changing the priority of my goals.

Have you discussed very clearly with your significant other what are her goals (financial or lifestyle) for that period? It would help if you plan together and you may need to invest a bit (or rather accept some financial tension) to keep her happy. Relationships are all about balance.
When I did my MBA, my husband (we had just married and came to US from abroad) left his job to join me – and spouses of students are not allowed to work. He started his own MBA next year, so we had 2-3 very difficult years, but all our finances were joint and we take all decisions together, so that one doesn’t feel shortchanged because of the other goals
I agree with #7 above, think long-term relationship and don’t get fixated on one goal

My husband and I are having this same dilemma right now. We have the money now to be less frugal and afford some of the luxuries that we want but how do you decide which and how much? It’s all kind of arbitrary when you’re in a good financial place. Will saving $100 month more make us happier long term than spending it on something we enjoy? I don’t know.

If I’m doing a quick review of my finances, I will simply add up all of my monthly bills including rent, utilities, hair cuts, food, clothing, gas, car repairs, home repairs, credit bills, and student loans. Anything left over is completely disposable and can be used any way I’d like.

Keep in mind that if you use this money to create a new monthly payment, your disposable income will decrease moving forward.

My experience has been that we can always afford that which is most important to us. If graduating debt-free is your top priority, your spending will reflect that. If making your significant other happy is more important, your spending will reflect that.

One is: is an enjoyable vacation worth slowing down or delaying a financial goal such as becoming 100% debt free or an 8 month emergency fund or what have you.

and two: What sort of compromise is to be made between two people in a serious relationship (perhaps not married yet tho) where one person makes significantly more than the other?

I struggle with both these issues. I am saving for a house downpayment, which here in Toronto with soaring house prices can never quite be big enough (I’m trying to get to $100k downpayment for 20%, eesh). I have a wedding of a great friend in Buenos Aires next year, the trip will likely run a few thousand dollars and I have never been to South America and want to go. But, that’s a few thousand dollars I could put towards my house! But the opportunity to go to Argentina with a big group of friends may never arise again in my lifetime like this, either. Arguments both sides!

For the second part, I’ve been seeing someone for 14 months who makes less than half what I do, the finances are totally separate now and we don’t live together, but already money has been an issue at this early stage (particularly about vacations, do I go with friends without them because they can’t afford it or do I stay home, even though I really want to go? neither solution is ideal!)

I agree with Katie. Based on what you’ve written here, I would go to Buenos Aires. You have to have balance in your life, especially when you’re not riding the poverty line. I’m assuming that if you’re able to sock away 100k for a down payment, then you don’t have any other debts weighing you down and aren’t the working poor. So in that case, it doesn’t make sense to not do something so special for yourself and your friends.

The local vacation was the smart choice obviously. The problem seems to me not a financial one but a… what do you call this… “relationship” one. How to make compromises.

You are being pressured to spending beyond your means, the other person is being forced to cut back in their “lifestyle” (whatever that means).

It’s always that way in a relationship, one way or another, you give up something for something else. If it’s not money it’s where you choose to live, or whose career takes priority when there is a conflict, or whether you have children or not and how many, and how to raise them, and do you spend Thanksgiving with your family or theirs, and what car you buy, and what movie should you rent tonight, etc., etc.

So get used to it and find a way to talk about it that doesn’t make you uncomfortable because there is only a whole lot more of that in the horizon when you share your life with somebody.

Regarding the money thing, specifically, I’d say let the loaded partner treat the poor one if they want the luxury so badly. Or learn to enjoy a more modest lifestyle where the company is more important than the thing you do. Or go on their own if they don’t feel like treating the other– nothing wrong with the occasional separate vacation.

I agree, this is a relationship issue more than a financial issue. No Debt MBA has been very clear about what s/he wants.

The SO (and by the use of that term I infer that they are *not* married and probably not living together – or, if living together, they probably split the costs 50/50) is not being quite so clear about what s/he wants.

The MBA program can’t have been a surprise. It’s for a finite period of time. There is a plan in place.

IMO the SO needs to come clean about whether *any* lifestyle contraction is acceptable.

Maybe s/he thinks it’s not and that NDM should just continue forking over money to “maintain” their lifestyle even though that is detrimental both to NDM’s immediate goals AND to the couple’s mutual financial well-being.

NDM should under no circumstances “give in” on spending more than s/he thinks s/he can afford. Two years is a very short period of time and if SO can’t handle that much deprivation, it doesn’t really look good for the future.

If I were the SO, and I wanted a permanent relationship with NDM, I would say “okay, you’ve got your deal, but I am still going to want to do some special stuff once in a while, so I will cover the cost because it’s important to me.”

If I didn’t want a permanent relationship, I would continue sulking about not blowing $2000 on a vacation.

Are you two married? If so, I think you might have a deeper issue. Everything was my savings, my values, etc. Even if spouses keep separate finances, goals should be respected and if one spouse places importance on a nicer vacation, well, then that needs to be a mutual goal, just like a debt free MBA needs to be.

If you’re not married, I guess I hope it’s not in your future unless you can get better at compromising.

Presumably you’re going into a top-tier MBA program so you can get a high paying job after graduation. You won’t be able to contribute any more into the Roth IRA once you start making that six-figure salary.

Instead of taking money out of the Roth IRA, you should be putting in *more*. As other posters mentioned, you’re better off with a low-interest student loan if the vacation is really such a priority.

Since I was living off of financial aid during college I had multiple shorter time-frames to work with, but it was a similar situation of having a large chunk of money at the start of each semester that had to last me not just until the end of the current semester but until the next semester’s financial aid check would roll in. So basically I took the total amount of money I had at the beginning of each semester (say $4,000), subtracted the amount I wanted to have left over as a safety cushion at the end of the semester (always at least $1,000), and divided the rest by the number of months until the next semester’s financial aid rolled in (avg. of 6 months) to give me an answer of $500 a month for all expenses. If I wanted to do something expensive, like buy steaks for dinner, I had to live off of Ramen for a month or two first to build up excess in the budget – the BUDGET not the bank account. Because the money in the account wasn’t really mine to spend NOW; it’s for groceries next month, and utilities the month after, and the emergencies that could pop up the month after that. Retirement savings are NOT for buying fun vacations now; they exist so your future self can buy something better than dogfood later.

The thing is the answer to this problem is so different depending upon the relationship. Is the significant other Mr./Ms Right or just Mr./Ms Right Now? And gender doesn’t matter.

If it’s just a right now sort of relationship, then NoDebtMBA should be upfront and save the money. But if it is (or soon will be) a marriage situation then NoDebtMBA needs to suck it up and take the vacation they’ve planned and looked forward to for a long time, particularly since the SO really still wants to do it.

Dying on your sword for $1000 if it’s the person with whom you’ll be spending the rest of your life means you’ve got issues, and those issues are not financial.

how is entering into a three way contract necessary for determining the commitment factor in a “SO” relationship?

Would it have helped you if they stated how long they have currently and whether or not they planned to be together indefinitely?

Some of us choose not to enter that contract just so WE can make the choice on which finances to keep separate rather than having an outside entity make those choices for us.

The government does not define one’s commitment to another human (but not for lack of trying on its part).

loading....

32

RJsays:

04 August 2011 at 8:53 am

In general, please don’t make the mistake of thinking that since you’re significant other will be making more money than you, the amount of money you spend to “keep up” so they don’t have to adjust their lifestyle represents how much you care about them. And if there is substance to the relationship it won’t make or break how they feel about you.

But more specifically to your dillema, if you’ve been discussing this vacation for a long time then what was your plan to pay for it then? What had you talked about? If your significant other is upset it’s not really about the money. It’s about cold feet. If it were me I’d find some temp work or sell something to pay for it.

If it is just cold feet, like you mention, take the trip you’ve agreed to and figure out a way to make up the extra $500 in the next 2 years. It’s not THAT much money to risk pissing off your SO.

That being said, an honest conversation with your SO about your fears might convince him/her to reconsider. Something like “My first tuition payment is due shortly, I’m worried about cash flow, what do you think about a less expensive vacation?”

I guess I’m getting hung up on the details, but I don’t understand why you have to spend $1000 to go backpacking. Why don’t you go camping at a nearby National Park for three nights and spend only $250 on gas, camping, admission to park, and groceries to bbq? You will have a fun experience, a few days out of town and not stress about it costing so much to get away. I’m in college right now. My tuition is paid, but our living expenses and incidentals are not all covered by my husband’s income. So I will probably graduate in the spring with about $13,000 of debt (for 2 years of university). I don’t think that is really that bad for a bachelor’s degree. Just try to be frugal, but don’t be a complete miser. I think it’s okay to have a little fun every once in a while. But if it’s really going to stress you out to pay for it, then don’t do it.

If I were in your position, I think I would open another bank account (maybe even a 3-month or 6-month CD) where you could stash your tuition money until you need it. This way, whatever is left in your regular bank account(s) is fair game, and you’ll earn a little extra interest on the money for school! Good luck!

This is a very intriguing problem. My girlfriend is also in school right now, and she knows she won’t be able to make it out without depleting savings (although she doesn’t have the same debt-free goal that you do).

I don’t think this has to be an “all or nothing” situation. I know you’re committed to finishing debt-free, but what if you were only $1,000 in debt? Would that really be that different than having no debt? I think it’s cool to say that you got your MBA without debt, but I’m not convinced that taking on a little bit of debt to keep your sanity and sustain your personal life is such a bad thing.

I had this problem when I was under-employed. When you barely make enough to pay rent and the debt load is climbing, you can’t afford anything. Even when you can pay your bills but you have no cushion, you can’t afford anything. Trouble is, when you can’t afford anything for a really long time, the temptation is to just say “screw it” and do what you want. I know I did this more than once. Maybe it kept me sane; maybe it just set me back. A tough question indeed.

As I wrote above, I think the use of S.O. was to mask gender, because anyone who reads GRS knows that once a relationship question comes up, the marriage police come out of the woodwork and the discussion becomes all about gender roles and not about the immediate question.

Which in this case is really “how much do I compromise my financial/life goals to please someone I care about who isn’t directly contributing to those goals.”

I think the poster needs to consider the opportunity cost of his time, get over the cold feet feeling, and take the silghtly more expensive trip.

It’s quite likely that this trip will occur, if not now, at some point in the future. (Since it’s to visit friends and obviously important to SO). After the poster completes the MBA, and perhaps becomes an employee, it will require use of paid time off.

So the question to me is “how much does the poster anticipate valuing a week’s vacation time in the future?, because not taking the trip now (while unattached to a job and the ability to travel is easily accessed), he will have to use a week in the future to do this trip.

Even more so, taking the trip sooner gives you more time to enjoy the memory and broaden your perspective for the rest of your life (if you have never taken this trip before).

I threw out the concept of *afford* a long time ago as a conscious decision regarding a specific friend. She made considerably less than me and in some contexts the phrase “I can’t afford it” felt almost patronizing, so I switched it with “That’s not in my budget.”

That concept applies here. Your problem is that your budget isn’t defined, or your budget IS defined and you don’t have enough to cover everything (sounds like the latter). So you have one of two options:

1) Write a reasonable budget including vacations and other non-survival expenses and everything gets an equal claim on the existing money, if you can’t make up the difference with summer jobs etc then you borrow the balance. This keeps your lifestyle on a predicable path while still preventing you from maxing out your borrowing for stupid purchases.

2) Write a survival budget (including tuition) and that money CANNOT BE TOUCHED for anything outside the budget. Extra money can be spent on extras after you pass the magic number. Barring emergencies this keeps you out of debt.

By articulating the philosophy up front it keeps you from emotionally charged decisions like this one, and you can be up front with your SO and not feel like you are deciding between the devil and the deep blue sea at every opportunity to spend money. It is conscious spending: neither underspending from fear, or overspending from optimism.

I do agree that you worry too much about the No Debt part of your MBA but I understand why. I still think you should pull out the full subsidized portion of your student loans the first year and still them in a high yield savings or checking and make some money on it but it is your choice. Either your money in your Roth was for education and your expenses (which may or may not include vacation) or it was for retirement, which was it? I doubt you have the money that might be needed for school in stocks so maybe that is how you can separate it. I’d go with the more expense one, if that is what you want. Stay home will not please either of you.

As someone who went to & graduated from a Top 5 business school, let me offer some observations:

Typically you have less money and more time / opportunity to do unique, fun stuff before or during b-school, while you have more money, less (no) time after b-school, esp. if you have kids.

You need to trade-off on that dimension.

When I was in business school I was quite frugal and opted out of some of the fun but expensive stuff like an internship in Uruguay, trip to New Zealand, trip to China etc.

Looking back, I wish I would have take advantage of some of those things. Together they would have set me back $5-10k max. Back then that was a ton of money for me. Today, while not petty cash, that is something I can afford relatively easily. Fast forward to retirement, having spent $5-10k in business school on fun stuff or not will not make a material difference – as in change in lifestyle, chosing btw steak or alpo.

Now I am just too busy and can’t ditch life/work for a month and go to South America.

So don’t get your knickers in a twist over such a small expenditure in the grand scheme of things. That said, do apply overall frugality and live like a student as a long as you can.

Also, if you want to work for non-profits after b-school, ignore all of the above, start eating alpo and save like a fiend.

I’m going to echo this, and add in the fact that you will miss out on the biggest part of the experience at most top 5 MBA programs – the networking – if you aren’t willing to go into debt. Like it or not, most of your classmates will be taking trips all over the world and running up bar tabs. I went to a top 5 law school, most of my close friends graduated from HBS/GSB/Columbia/Kellogg/Wharton, and it’s the same thing everywhere. While you definitely have the right idea about keeping a lid on the debt and not going crazy, I’m with Jake and would say take advantage of the fact that you’ve got time and friends to travel with. Those are two things that are harder to come by once you’re back out in the working world with kids and etc.

I hate my student loan debt with a passion. But if you offered to refund the money I spent on traveling while in grad school, I wouldn’t trade it back.

Co-signed. Also, why on earth are you going to business school if you can’t spend $1000 to visit friends? B-school is a silly investment proposition if you aren’t prepared to spend money (a lot of money) in order to build relationships and a great network. I’m a graduate of a top law school and I think you’re CRAZY to put your friendships and your SO behind your “no debt” fixation. Way better investment would be getting a part-time TAship or RAship while you’re in school.

A great question to ask. You can approach it strictly from a numbers point of view, but you lose some perspective. You need to consider more than just what you “can” afford by adding some prioritization to your spending needs.

Was there a reason that camping on the west coast was ruled out? Plane tickets are very cheap right now too. It seems like you could bring down that $1000 with a little more effort invested in planning and still get the destination and visit with friends you both really want, before you get completely tied up in MBA-Stuff.

First off, great job on pursuing an MBA debt-free and for really thinking through your expenses. Not tapping your IRA or taking on debt for vacation is definitely a wise choice. I think one more year of roughing it through year two of your MBA and then you can really treat yourself. Hopefully there will be a job out there for a freshly minted MBA and you will be in a good spot. Let’s just hope the economy holds up for you or your blog keeps going strong…. wishful thinking

My problem is that you seem to change the rules of the game an awful lot. Initially, you told your SO that you were planning to use your Roth IRA as a vehicle to save for your MBA, as well as for retirement. Now, you phrase it as if you followed up on YOUR initial idea, you would be “raiding” your retirement funds, even if it’s for this small amount and YOU had planned on using at least part for this money during your MBA.

Next, you mentioned that you and your SO talked for quite some time about a trip and found ways to make it incredibly cheap (likely talking to your fireds first to make sure it’s OK) so lots of time and energy went into the decision. Now that it’s time, again, cold feet.

Two years is a blip, but you seem to be setting up a pattern that you’ll back out. You can’t tell a person one thing and let them expect it and make plans for that, and then change the plans so radically. I would have a harder time with the change in expectations that seem to happen.

Are you too focused on this goal simply for bragging rights? I’m all for wise PF decisions, but where do you try the line in what you can “afford”?

Totally in agreement with you! It sounds like NoDebtMBA’s SO already made tons of frugal decisions to be able to afford the trip – and then she’s changing her mind because it’s still not cheap enough. If I were the S/O, I would be extremely upset that “MBA with absolutely NO Debt” took priority over our relationship, and a special trip that we had been planning for a long time.

My partner would do this – every bit of savings we had, no matter where/what it was put or earmarked for, he would find some reason not to spend. Some whatif. But I’ll need that money to replace the roof someday! Or what if the car breaks down completely?

We finally put a cap on the “emergency” fund and started an additional “spending” fund.

NoDebtMBA should have a place tuition money is kept, and save separately for other expenses (like this trip) so she’s not tempted to either overspend and not have tuition money, or overworry and not get to do other things.

I agree with above posters that “Can I afford it?” really isn’t the right question. Yes, you can afford it. But is it compatible with your financial goals? While the Suze Orman formula is ideal, it won’t work for all of us. Based on that my husband and I shouldn’t purchase a luxury as small as a pizza for the next 10 or 20 years. Sometimes when you are faced with large debt (like our nearly $50,000 in student loans) you need to allow for small luxuries, assuming that you plan for the costs in advance and don’t get caught up in impulse decisions. Going on a $5,000 cruise wouldn’t meet our financial goals, even though we technically have the cash, but that money has been set aside for other things. But spending the occasional $40 on a dinner out (or $500-$1,000 on a low cost vacation) can do a lot for your quality of life and won’t necessarily throw off your financial goals.

All things being equal and planned for—just toss a coin. Your heart will tell you which side you want. Go with that. Seriously. If you’ve done all the work saving, budgeting, planning, etc., what possible difference could $500 make in terms of a lifetime of good times with people you love. Take it from a 64 year old. Plan the work, work the plan and have fun every once in a while. Don’t sweat the small stuff.

Don’t go. I can “afford” a lot of things, because I have money in the bank. But if they’re not categorized in vacation or eat out, I don’t do it.

You’re stealing from your future self if you go. There are times when I “blew” my budget and just went. Looking back I wish that I hadn’t.

I do think you should go on an alternative trip. A camping trip that costs next to nothing close to home.

If SO wants to go visit friends and SO has $1000, SO can go alone. But if you’re expecting SO to pay your 1/2 of the bills and that’s why they don’t have the $1000 to go alone that doesn’t seem fair. What prevents you from leaving SO as soon as your school is done, debt free because you’ve been living off them? I think this equation is different than if the person is a spouse. If the SO is a spouse, you should have just written spouse.

Second, if you love the girl, and the trip is worth it, invest some money into the relationship and take the better trip. Experiences are priceless. And we’re talking about a few hundred dollars here, which is a mere pimple on an Elephant’s arse as far as a your financial future is concerned.

One thing to keep in mind, there’s absolutley nothing wrong with seperate vacations either. Go camping together – then if your partner still feels they want to do something more and can afford it, there’s no reason they can’t go ahead and do that too on their own.

It seems to me that a compromise had already been reached and now you are trying to back out or change the terms due to your “cold feet.” If you have realized that you’re not comfortable with vacations after all while you’re getting your education, that is something you can keep in mind going forward. But it’s unfair to try to back out of or change plans that have been made.

However on the larger question, the bottom line is that the sacrificing needs to go both ways. SO is spending less than s/he could and wants to, and occassionally you’ll need to spend more than you want (if you care about staying with this person long term).

I do agree with the earlier comment that this is sort of a self-imposed “rags to riches” situation. It’s ok to even out your spending, knowing that your income is almost certain to increase over the next decade. You’re spending more than you make now whether you like it or not; later you’ll spend less than you make to roucoup your savings and/or pay off debt. There’s no reason to issue a ban on all vacations now just to wait 2 years and then be free and able to spend thousands of dollars a year on vacations.

Again all this assumes you are not actually broke or in debt but simply trying to reach an arbitrary/optional financial goal. If you were trying to pay off mounds of high interest credit card debt it would be different.

Advertiser Disclosure:
Many of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here.
This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.
Editorial Disclosure: This content is not provided or commissioned by the bank advertiser.
Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.
UGC Disclosure: These responses are not provided or commissioned by the bank advertiser.
Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Disclaimer: Rates / APY terms above are current as of the date indicated. These quotes are
from banks, credit unions and thrifts, some of which have paid for a link to
their website. Bank, thrift and credit union deposits are insured by the FDIC
or NCUA. Contact the bank for the terms and conditions that may apply to you.
Rates are subject to change without notice and may not be the same at all
branches.

Disclaimer:All information provided on this site is for informational purposes only. GetRichSlowly.org makes no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions in this information or any damages arising from its display or use.